A hospital estimates that, based on past experience, it will incur $5 million in malpractice claims as a result of services rendered in the current period. The hospital carries a malpractice insurance policy with a yearly $2 million deductible clause. The amount that should appear on its year-end financial statement as Claims Expense (Loss) should be

a) $0. b) $2 million. c) $3 million. d) $5 million.

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Business

Kamora Guzman

26 September, 03:45

A hospital estimates that, based on past experience, it will incur $5 million in malpractice claims as a result of services rendered in the current period. The hospital carries a malpractice insurance policy with a yearly $2 million deductible clause. The amount that should appear on its year-end financial statement as Claims Expense (Loss) should be

a) $0. b) $2 million. c) $3 million. d) $5 million.

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Answers (1)

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Tanner Yang · Answer 1

d) $5 million.

Explanation:

The amount that should appear on the year-end financial statement should be the most probable estimate. In this case, $5 million is the most probable because this is deduced from past experience, while $2 million is a practice that should be reviewed in the light of new information.